• Home
  • Services
    • Guarantor Loans
    • Debt Consolidation
    • Home Loan Redraw and Cash Out
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
Menu
  • Home
  • Services
    • Guarantor Loans
    • Debt Consolidation
    • Home Loan Redraw and Cash Out
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
the mortgage agency logo
  • About
  • Blog
  • Contact
Menu
  • About
  • Blog
  • Contact
the mortgage agency logo
  • About
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
  • Contact
  • Services
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Blog
Menu
  • About
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
  • Contact
  • Services
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Blog
  • Book in your Free discovery session now!
Uncategorized
/
July 15, 2020

Fixed-Rate Vs Variable Rate on Home Loan:

Tony Xia

SHARE

What’s a fixed interest rate home loan?

A fixed-rate home loan is a loan with a set interest rate, paying a set repayment amount each month for a set term.

Fixed home loan interest rates may be considered predictive. In given terms, borrowers look at the expense of keeping money at a specified rate for a given period of time at a set interest rate.

In particular, if borrowers assume rates to increase, a fixed rate option will typically be stronger than variable rate and vice versa if consumers expect rates to decrease.

If a borrower has chosen a fixed rate on their residential mortgage, it’s typically an indication they expect the variable rate to increase beyond the rates they have settled in.

Lenders can provide fixed rates from 1 and 10 years; nevertheless, majority of fixed-rate deals are between one and five years  with 2 and  3 years being the more commonly chosen.

What is Variable interest rate on the home loan?

The variable interest rate of a Borrowers home loan fluctuates in line with the Reserve Bank Cash rate.

The Reserve Bank uses the cash rate as a flippant device to try to handle economic growth – when economy is growing too fast (generally when the financial system has been doing excellent) the exchange rate generally rises; when the financial system is eroding (economic growth is slow), the exchange rate has often been falls to stimulate expenditure and spending.

What are the advantages and disadvantages of fixed rates of home loans?

Advantages of fixed-rate home loans:

  • Loan payments will not increase if interest rates increase.
  • Gives ease of mind to borrowers worried about rate rises
  • Enables for more accurate budgeting
  • Taking advantage of the lower rates.

Disadvantages of fixed-rate home loan:

  • Loan payments do not decrease if rates fall
  • Are restricted to making extra payments ( with majority of the banks)
  • Early termination fee applicable if fixed rate term is broken.

What are the advantages and disadvantages of variable rates of home loans?

Advantages of variable rate home loan:

  • Banks Standard Low Deposit Home Loans allows you to make extra repayments with no penalties
  • Unrestricted redraws on any additional repayments you have made
  • Enjoy full interest offset advantages when you open an Everyday Offset account
  • Allows you to shop around to refinance for a better rate.

Disadvantages of variable rate home loan:

  • Your payments increase when rates increase.
  • It can be more difficult to prepare for the future because you cannot be certain how interest rates will go forward.

What are the break fees?

When you take up a fixed rate option and you’re looking to turn it back to a variable rate home loan or terminate your loan application before the fixed term expires to refinance to another bank or selling your home, you will be penalised for breaking the fixed-rate term loan agreement. These costs are recognized as break payments, premature repayment modifications, or financial costs to the bank.

Warning: Break charges can be quite high as its calculated differently everyday at a different rate. The earlier you break your fixed term contract, the more costly it can be. As the funding for these products are through Bonds.

Many lenders these days will ask you to sign an declaration form if you fixed your loan to confirm you understand the risk of taking up such product.

How much are you supposed to fix?

You must try to determine how much you are going/plan to pay off your residential mortgage over a fixed-rate period or at least deposit the funds into your offset account, and then hold that section of your loan variable. This helps you to create additional returns on the variable rate section without risking any charge for a break fee as you will be minimising the interest payable and also allow you to pay down the loan faster.

How long are you meant to fix for?

The longer you fix your loan, the stronger the premium you pay for the safety of the fixed interest rate. Sometimes it may work out and sometimes it may not.

Many individuals select their fixed-rate term depending on what they think the direction of interest rates will be, and when they anticipate their situations or desires to alter, Generally the most common is 2 or 3 years fixed loan products.

What is a Rate Lock?

Generally, an approval will have an expiry date of between 60 – 90 days at the time your loan is approved (but not settled) dependent on which bank, if the fixed rate reduces that time, you might be eligible for the lower fixed rate.  however, if consumers believe fixed rates are about to increase before their loan settles and their approval is approved at a lower fixed rate, they may want to pay a once off non refundable fee to lock in the original lower fixed rate as this could better off in the long run, paying a once off fee rather paying a higher rate over the next few years during the fixed period. Cost of this fee varies from lender to lender. Best investment home loan rates

First home buyer
Real Estate
Property
First home loan deposit
Borrowing Capacity

About Tony Xia

Having worked in the customer service and finance industry since 2011, our Director Tony Xia and his team’s highest priority is to cultivate a long-lasting relationship with clients based on trust and respect at The Mortgage Agency.

Related

Top 4 Questions To Ask Your Mortgage Broker

July 24, 2022
/
Mortgage Broker
Tony Xia
high lvr home loans

What Is An Interest-Only Home Loan & How Does It Work?

July 24, 2022
/
Investment Property Loan
Tony Xia

Breaking Into Property Investment—How A Broker Can Help

July 7, 2022
/
Investment Property Loan
Tony Xia

Borrowing Power: How Much Can I Borrow For My Mortgage?

June 24, 2022
/
Loan Tips
Tony Xia
key with a mini house

How Much Can I Borrow With A Guarantor Mortgage?

June 21, 2022
/
Loan Tips
Tony Xia
key with a mini house

What Happens When You Pay Off Your Mortgage?

June 21, 2022
/
Mortgage Broker
Tony Xia

Everything You Need to Know About a Pre-Approval Home Loan

April 1, 2022
/
Home Loan Tips
Tony Xia
first home buyer mortgage broker

How to Choose a First Home Buyer Mortgage Broker Suited To You

March 17, 2022
/
Mortgage Broker
Tony Xia
land loan

The Ultimate Guide on Land Loans

March 17, 2022
/
Loan Tips
Tony Xia
rental tax

How Is Rental Income and Loss Taxed?

November 15, 2021
/
Rental Tax
Tony Xia

Top 4 Questions To Ask Your Mortgage Broker

July 24, 2022
/
Mortgage Broker
Tony Xia
high lvr home loans

What Is An Interest-Only Home Loan & How Does It Work?

July 24, 2022
/
Investment Property Loan
Tony Xia

Breaking Into Property Investment—How A Broker Can Help

July 7, 2022
/
Investment Property Loan
Tony Xia

Borrowing Power: How Much Can I Borrow For My Mortgage?

June 24, 2022
/
Loan Tips
Tony Xia
key with a mini house

How Much Can I Borrow With A Guarantor Mortgage?

June 21, 2022
/
Loan Tips
Tony Xia
key with a mini house

What Happens When You Pay Off Your Mortgage?

June 21, 2022
/
Mortgage Broker
Tony Xia
Preferred partners
anz logo
ing logo
better choice logo
adelaide logo
auswide-bank-logo
beyond bank logo
bank australia logo
bank of sydney
bluebay homeloans logo
bluestone logo
bmm logo
citibank logo
cba logo
emoney logo
equifax logo
Firstmac-Logo-2016-Copy
fms logo
galilee logo
Heartland Finance logo
heritage
illion logo
get capital logo
latitude logo
latrobe logo
Macquarie_Bank_Logo_MBVert_BLK
me bank logo
mezy mortgage logo
mkm logo
movbe bank logo
mystate bank logo
st george
paramount logo
pepper money logo
virgin logo
plenti logo
qudos bank logo
resimac logo
suncorp bank logo
thinktank logo
ubank-logo2
victorian mortgage group logo
westpac logo
wisr
WLTH logo

Speak to the mortgage agency today

Talk to us now
hte mortgage agency footer
  • Home
  • About
  • Calculators
  • Services
  • Locations
  • Blog
  • Contact
Contact Us

Bella Vista Office

  • 217/14 Lexington Drive, Bella Vista, NSW, 2153
  • 0423 718 612

Parramatta Office

  • 19/103 George St, Parramatta NSW 2150
  • 1800 242 234

Penrith Office

  • 95b Station St, Penrith NSW 2750
  • 1800 146 759

Sydney Office

  • Seabridge House, Suite 120/377 Kent St, Sydney NSW 2000
  • 1800 146 759

Serving The Wider Sydney Area

  • Canterbury-Bankstown
  • Eastern Suburbs
  • Forest District
  • Greater Western Sydney
  • Hills District
  • Inner City
  • Inner West
  • Northern Beaches
  • Northern Sydney
  • St George
  • South-Western Sydney
  • Sutherland Shire
the mortgage agency logo
Tony Xia is A Credit Representative (477089) Of Mortgage Specialists Pty Ltd ACN 050 601 093 (Australian Credit Licence 387025)
Facebook-f Linkedin-in Instagram
Copyright @ 2022
  • Terms and Conditions
  • Privacy policy
  • Website Safe and Secure
  • Made With
  • By Digital Recipe